725 F.

2d 871

RESTOR-A-DENT DENTAL LABORATORIES, INC.,

Plaintiff-Appellee,
v.
CERTIFIED ALLOY PRODUCTS, INC., Defendant,
Unigard Mutual Insurance Company, Intervener-Appellant.
No. 93, Docket 83-7731.

United States Court of Appeals,

Second Circuit.
Argued Dec. 16, 1983.
Decided Jan. 13, 1984.

William M. Stewart, New York City, for plaintiff-appellee.

Thomas R. Newman, New York City (Siff & Newman, P.C., Earl J.
McHugh, Lissa Griffin, New York City, of counsel), for intervenerappellant.
Before FEINBERG, Chief Judge, and FRIENDLY and OAKES, Circuit
Judges.
FEINBERG, Chief Judge:

I.

Unigard Mutual Insurance Company (Unigard), appeals from an order of the

United States District Court for the Southern District of New York, David N.
Edelstein, J., denying Unigard's motion to intervene pursuant to Fed.R.Civ.P.
24(a) and (b) in an action between plaintiff Restor-A-Dent Dental Laboratories,
Inc. (Restor-A-Dent) and defendant Certified Alloy Products, Inc. (Certified).
The stated purpose of Unigard's intervention is to propose interrogatories to the
court for submission to the jury in the event that the jury returns a verdict for
Restor-A-Dent. Unigard claims that it has the right to intervene under Rule
24(a), and in the alternative that the district court abused its discretion in
denying permissive intervention pursuant to Rule 24(b). For reasons stated
below, we affirm the order of the district court.

In August 1982, Restor-A-Dent filed its complaint against Certified, consisting

of three causes of action. The first alleges that Certified breached its contract
with Restor-A-Dent by delivering defective alloy to be used in producing dental
products, for which Restor-A-Dent claims damages of $216,068 for "loss of
production time, including additional labor costs, overhead costs, etc., to
reproduce its dental products...." The second cause of action seeks $319,500 in
damages for loss of profits from the breach of contract and warranty of
merchantability and fitness. The third cause of action alleges $1,509,860 in
damages from the breach due to loss of accounts and loss of goodwill.

Unigard is Certified's general liability insurer. In that capacity, it has apparently

retained counsel to represent Certified in the action and has continued to
provide a defense. However, according to the record before us, Unigard has
informed Certified that while it will provide a defense to Certified, "it [does]
not have any duty to indemnify Certified for intangible losses such as 'loss of
production time, loss of profits, loss of accounts and loss of goodwill....' "

Restor-A-Dent's action against Certified proceeded in routine fashion with the

parties engaging in, and apparently completing, discovery until June 1983 when
the pretrial order was due. At that time, Unigard moved to intervene under Rule
24(a) and (b), "for the limited purpose of submitting written interrogatories to
[the] Court for submission to the jury, to be answered by the jury in the event
that it returns a verdict awarding damages to plaintiff...." Unigard stated that
under California law, which it alleges governs interpretation of the insurance
policy, Unigard is obligated to pay only for "property damage" which does not
include such items as loss of profits, loss of accounts and loss of goodwill.
Since the allegedly non-covered items constituted some 90% of Restor-ADent's total demand of over $2,000,000 damages, Unigard contended that it was
critical to "know with certainty the exact dollar amount of the damages assessed
against Certified for which Certified claims to be entitled to indemnification
from Unigard," in the event that the jury found for Restor-A-Dent. Unigard
argued that a general verdict would make difficult, if not impossible, a precise
determination as to the allocation of the jury's award and alleged that its
intervention would not delay or impede the action. Unigard attached six
suggested interrogatories with its motion, although it failed to furnish a copy of
the insurance policy. The proposed interrogatories are reproduced in the
margin.1

Defendant Certified took the position that if the disputed claims were to go to
the jury at all, the suggested interrogatories "may be proper." Plaintiff RestorA-Dent opposed the motion to intervene, arguing that Unigard knew of the
lawsuit almost from its inception since it was defending Certified, yet had

remained silent until all discovery was completed and the pre-trial order
submitted. Restor-A-Dent also claimed that it would be "grossly" prejudiced if
intervention were permitted since if "special interrogatories are added to the list
of items that the jury must address ... the burden to reach a just verdict will
become excessive, falling entirely on the shoulders of the plaintiff."
6

By endorsement dated August 5, 1983, the district judge denied Unigard's

motion to intervene. The decision was based on the tardiness of Unigard's
motion and the burden that the judge thought intervention would place on
Restor-A-Dent. Unigard appealed, and moved in this court to have the trial
stayed pending appeal and the appeal expedited. A panel of this court denied
the motion in September 1983, and we are informed that the case presently
awaits trial. On appeal, Unigard contends that the district court erred in not
allowing intervention under either subsection (a) or subsection (b) of Rule 24.
We consider first Unigard's contentions as to the former, which deals with
intervention as of right.II.

Under Rule 24(a)(2), which is reproduced in the margin, 2 an intervener must

show that: (1) the application is timely; (2) "the applicant claims an interest
relating to the property or transaction which is the subject matter of the
action...."; (3) the protection of the interest may as a practical matter be
impaired by the disposition of the action; and (4) the interest is not adequately
protected by an existing party. See United States Postal Service v. Brennan, 579
F.2d 188, 191 (2d Cir.1978).

As to requirement (1), Unigard argues that it seeks to intervene only after a

general verdict for plaintiff, should there be one, and that the trial had not yet
begun nor had the pre-trial order been entered when it made its motion. As to
requirements (3) and (4), Unigard points out that if the jury returns only a
general verdict for plaintiff in the action, it will be extremely difficult, if not
impossible, for Unigard or anyone else to determine exactly what items the
jury's award took into account. Moreover, the parties to the case may not desire
any clarification of the award: Restor-A-Dent has already indicated its
opposition to interrogatories, and Certified, as the insured, may have no real
interest in clarifying the extent to which it must pay Restor-A-Dent's damages
out of its own pocket rather than looking to its insurer. We are willing to
assume arguendo, therefore, that on these facts the critical inquiry regarding
Unigard's right to intervene under Rule 24(a)(2) is whether Unigard has an
interest relating to the property or transaction which is the subject matter of the
action.

The term "interest" in this context defies a simple definition. See Vazman, S.A.

v. Fidelity International Bank, 418 F.Supp. 1084, 1085 & n. 1 (S.D.N.Y.1976);

Shapiro, Some Thoughts on Intervention Before Courts, Agencies and
Arbitrators, 81 Harv.L.Rev. 721, 740 (1968) (Shapiro). Before the 1966
amendment, Rule 24(a) allowed intervention as of right only where the
applicant "is or may be bound by a judgment in the action" or where the
"applicant is so situated as to be adversely affected by a distribution or other
disposition of property in the custody of the court or of an officer thereof." See
original Rule 24(a)(2) and (3), 28 U.S.C. app. at p. 2624 (1940). Clearly, the
1966 amendment was intended to expand the right to intervene beyond those
situations. See Fed.R.Civ.P. advisory committee note to 1966 amendment, 28
U.S.C. app. at pp. 432-33 (1976). However, as another court has aptly
observed, "the amendments made the question of what constitutes an 'interest'
more visible without contributing an answer." Smuck v. Hobson, 408 F.2d 175,
178 (D.C.Cir.1969) (in banc).
10

In discussing "interest" in the context of intervention as of right, the Supreme

Court has stated that the interest must be "significantly protectable." See
Donaldson v. United States, 400 U.S. 517, 531, 91 S.Ct. 534, 542, 27 L.Ed.2d
580 (1971); see also Cascade Natural Gas Corp. v. El Paso Natural Gas Co.,
386 U.S. 129, 154, 87 S.Ct. 932, 946, 17 L.Ed.2d 814 (1967) (Stewart, J.,
dissenting) (applicant must "have an 'interest' in the litigation sufficiently direct
and immediate to justify his entry as a matter of right."). Moreover, it is said
that such an interest must be direct, as opposed to remote or contingent. See,
e.g., Airline Stewards and Stewardesses Ass'n v. American Airlines, Inc., 455
F.2d 101, 105 (7th Cir.1972); In re Penn Central Commercial Paper Litigation,
62 F.R.D. 341, 346-47 (S.D.N.Y.1974), aff'd without opinion, 515 F.2d 505 (2d
Cir.1975); 3B Moore, Moore's Federal Practice p 24.07 at 24-59 (2d ed. 1982).

11

These definitions are, of course, imprecise, but it is difficult to be more than

general in stating criteria designed to cover the multitude of possible
intervention situations, see authorities collected in 3B Moore, supra, p 24.07 at
24-54-62; see also Shapiro, supra, at 729-40. For a number of reasons, we do
not believe that Unigard meets the requirements of the Rule. First, the
transaction that is the subject matter of the action is Certified's delivery of
allegedly defective alloy to Restor-A-Dent for the latter's use in producing
dental products; this, in turn, led to Restor-A-Dent's claim for damages against
Certified for breach of contract. Unigard's interest, on the other hand, is in the
amount it will have to pay Certified if Restor-A-Dent wins. Accordingly,
Unigard does not have an interest in the subject matter of the action between
Restor-A-Dent and Certified. Cf. Crown Financial Corp. v. Winthrop Lawrence
Corp., 531 F.2d 76, 77 (2d Cir.1976) (per curiam) (purchaser of land with lien
has no interest in underlying action in which judgment against the seller's

receiver was secured). In addition, the interest asserted by Unigard depends

upon two contingencies. The first is a jury verdict for Restor-A-Dent, for only
then will the question of Unigard's liability become relevant. The second
contingency is a finding in litigation not yet even commenced between Unigard
and Certified that Unigard is not responsible for indemnification of certain
types of losses under the terms of the policy. See Liberty Mutual Insurance Co.
v. Pacific Indemnity Co., 76 F.R.D. 656, 658-60 (W.D.Pa.1977) (plaintiff in
underlying personal injury action cannot intervene as of right in declaratory
judgment action between insurers since plaintiff has not yet recovered judgment
and because contested issues of fact must be resolved in his favor before he can
recover); see also In re Penn Central Commercial Paper Litigation, supra
(interest contingent upon certain events occurring and certain findings being
made);3 but cf. SEC v. Flight Transportation Corp., 699 F.2d 943, 948 (7th
Cir.1983) ("intervention as of right may be based upon an interest which is
contingent upon [occurrence of] three events.").
12

Unigard has not cited any case where an insurance company has been allowed
to intervene as of right for the purpose of proposing interrogatories for
submission to the jury, though Unigard's counsel informed us at oral argument
of an article urging use of this procedure. See Williamson, Intervention by
Insurers to Avoid Liability for Uncovered Claims, 25 For the Defense 19 (Feb.
1983) (Defense Research Institute) (Williamson). However, we are not
persuaded by the cases cited by Unigard and Williamson, supra, at 21-22, that
Unigard has a right to intervene under Rule 24(a). In McDonald v. Lavino, 430
F.2d 1065, 1071 (5th Cir.1970), the Fifth Circuit reversed a district court for
refusing to allow a workmen's compensation carrier to intervene under Rule
24(a) one day after the employee had obtained a judgment against a third-party
tortfeasor, but the carrier there had a "subrogation interest" in any recovery on
the judgment because of the sums it had already paid the employee. Such an
interest is more direct than the contingent interest asserted by Unigard. In
Lawrence v. Burke, 6 Ariz.App. 228, 431 P.2d 302 (1967), an insurance
company intervened to set aside a default judgment which would otherwise be
binding on it. Similarly, in Roach v. Churchman, 457 F.2d 1101, 1104 (8th
Cir.1972), an insurer had been allowed by the district court to protest a consent
judgment which might have made it liable, and the circuit court, in passing,
characterized the district court's action as "equivalent" to authorizing the
insurer's intervention under Rule 24(a). In these latter two cases, unlike the case
before us, the intervener was already in the position of being directly affected
by the litigation. The case relied on most heavily by Unigard and Williamson,
supra, for the proposition that Unigard has a right to intervene under Rule 24(a)
for the limited purpose that Unigard seeks, states that the applicant was
"without a meritorious claim under Rule 24(a)...." Plough, Inc. v. International

Flavors and Fragrances, Inc., 96 F.R.D. 136 (W.D.Tenn.1982) (but allowing

intervention under Rule 24(b)).4
13

We conclude that Unigard did not satisfy the requirement of Rule 24(a)(2) that
it "claims an interest relating to the property or transaction which is the subject
of the action...." We do so fully aware that the precedents in support of this
view are less than overwhelming. Indeed, Plough is the only case we have
found that is directly on point, and the ruling denying intervention as of right
there is stated in merely conclusory fashion. We are frank to admit that we are
also influenced here by practical considerations that seem significant. A refusal
to find a right under Rule 24(a) still leaves open the possibility in an
appropriate case of permissive intervention by an insurer under Rule 24(b) for
the purpose sought here, while a contrary holding would open the door wider to
such intervention regardless of any unfortunate effect on the course of the main
action. Moreover, a variety of factors properly bear on whether the type of
intervention sought here should be allowed, see Shapiro, supra, at 740, and the
trial judge's determination should ordinarily be accorded great weight.
Application of subsection (b) of Rule 24 rather than subsection (a) recognizes
these considerations, in view of the explicit emphasis in the former on undue
delay or prejudice in the main action, as will be seen below. Cf. Shreve,
Questioning Intervention of Right--Toward a New Methodology of
Decisionmaking, 74 Nw.U.L.Rev. 894, 913-16 (1980).

III.
14

We turn next to whether the district court erred in denying Unigard's motion to
intervene under Rule 24(b)(2). That subsection, which is reproduced in relevant
part in the margin,5 permits intervention when "an applicant's claim or defense
and the main action have a question of law or fact in common." The Rule goes
on to state that "[i]n exercising its discretion the court shall consider whether
the intervention will unduly delay or prejudice the adjudication of the rights of
the original parties." It seems clear that the same fact question--the amount of
monetary loss sustained for each type of damage claimed--is at issue in the
main action and in the coverage dispute between Unigard and Certified. The
critical issue here is whether the district judge abused his discretion.

15

A district court's discretion under Rule 24(b) is broad. See S.E.C. v. Everest
Management Corp., 475 F.2d 1236, 1240 (2d Cir.1972). The judge gave as the
sole ground for denying intervention that plaintiff Restor-A-Dent "should not
be burdened at this late stage in the litigation with the responsibility of
introducing the evidence that will settle the potential differences between"
Certified and Unigard. Were this the only reason for denying intervention that

appears from the record, we would find that the trial judge abused his
discretion in denying permissive intervention because it is quite clear from the
pre-trial order that plaintiff has prepared the evidence referred to by the judge
and would not be prejudiced on this account by the "late" motion. However,
there are other significant considerations.
16

This is not a case in which the insurer has any great need for the relief sought.
Restor-A-Dent alleges three causes of action. The first seeks $216,068 in
damages for "loss of production time, including additional labor costs, overhead
costs, etc., to reproduce its dental products...."; the second seeks $319,500 in
lost profits in the sale of its dental products; and the third seeks $1,509,860 for
loss of profits as a result of the loss of accounts and goodwill. Unigard's claim
with respect to the insurance policy is that it would not be liable to Certified at
all on the second and third causes of action alleging loss of profits, and that it is
liable for only part of the first. If the judge requires a separate verdict as to each
cause of action, as he presumably will, Unigard's concern is substantially
reduced to the sole element of the first cause of action, "loss of production
time," as to which it disputes coverage.

17

Also, there is no assurance that permitting Unigard to intervene would not

unduly delay the main action. In addition, Unigard may object to the court's
failure to submit to the jury its proposed interrogatories or to the way these
interrogatories are framed by the court, and may appeal, if unsuccessful. While
it is highly unlikely that such an appeal would be successful in view of a district
court's broad discretion in this context, nevertheless the possibility of this
complication of the main action remains. Cf. Cann v. Ford Motor Co., 658 F.2d
54, 58 (2d Cir.1981), cert. denied, 456 U.S. 960, 102 S.Ct. 2036, 72 L.Ed.2d
484 (1982).

18

Moreover, unlike the situation in Plough, supra, Certified is represented not by

its own counsel, but by counsel supplied by its insurer. Allowing the insurer to
intervene even for limited purposes might, as a practical matter, deter a
settlement and may well exacerbate a potential conflict of interest for the
attorney furnished by Unigard to represent Certified. Moreover, Unigard failed
to submit the disputed insurance policy to the district court. As Restor-A-Dent
pointed out in stressing this deficiency below, the policy would have enabled
the court to determine whether "there is a legitimate controversy" between the
insurer and its insured or "whether this is merely a tactical move" to affect
settlement talks or the outcome of the action. We could, of course, condition
reversal on Unigard's satisfying the district court in this regard, but we see no
persuasive reason to relieve Unigard of the consequences of its failure,
particularly when the case is ready for trial.

19

Under all of these circumstances, we cannot say that the district judge abused
his discretion here.6 On the other hand, in view of the economy of time and
effort inherent in the use of interrogatories in this situation, it would likewise
not have been an abuse of discretion had the trial judge permitted the insurer to
intervene under Rule 24(b)(2) for the limited purpose of proposing
interrogatories to the court for submission to the jury. We hold only that the
court did not abuse its broad discretion in refusing to follow that course.7

20

The order of the district court denying Unigard's motion to intervene pursuant
to Fed.R.Civ.P. 24(a) and (b) is affirmed.

If the jury finds that plaintiff, Restor-A-Dent, is entitled to damages, then the
jury shall answer the following questions, in writing
WITH RESPECT TO THE "FIRST CAUSE OF ACTION""
(1) How much, if any, of plaintiff's damage is attributable to loss of production
time?
(2) How much, if any, of plaintiff's damage is attributable to additional labor
costs?
(3) How much, if any, of plaintiff's damage is attributable to overhead costs?
WITH RESPECT TO THE "SECOND CAUSE OF ACTION""
(4) How much, if any, of plaintiff's damage is attributable to the loss of profits
in the sale of its dental products to laboratories?
WITH RESPECT TO THE "THIRD CAUSE OF ACTION""
(5) How much, if any, of plaintiff's damage for loss of profits is attributable to
the loss of accounts?
(6) How much, if any, of plaintiff's damage for loss of profits is attributable to
the loss of goodwill?

Rule 24(a)--Intervention of Right. Upon timely application anyone shall be

permitted to intervene in an action:
***
(2) when the applicant claims an interest relating to the property or transaction

which is the subject of the action and he is so situated that the disposition of the
action may as a practical matter impair or impede his ability to protect that
interest, unless the applicant's interest is adequately represented by existing
parties.
3

Compare with Tatum v. Cardillo, 11 F.R.D. 585 (S.D.N.Y.1951) (single

contingency of liability in main action); United States v. C.M. Lane Lifeboat
Co., Inc., 25 F.Supp. 410 (E.D.N.Y.1938) (same), aff'd, 118 F.2d 793 (2d Cir.),
petition for cert. dismissed, 314 U.S. 579, 62 S.Ct. 124, 86 L.Ed. 469 (1941)

Knapp v. Hankins, 106 F.Supp. 43, 47-48 (E.D.Ill.1952) and Quentin v.

Henderson, 110 N.Y.S.2d 561 (N.Y.Sup.Ct.1951), also relied on by appellant,
allowed an insurance company to intervene to obtain a declaratory judgment
and to move for a stay, respectively, but in the context of a claim by the insurer
that it should not have to defend the insured at all in the main action

Rule 24(b)--Permissive Intervention. Upon timely application anyone may be

permitted to intervene in an action:
***
(2) when an applicant's claim or defense and the main action have a question of
law or fact in common.
***
In exercising its discretion the court shall consider whether the intervention will
unduly delay or prejudice the adjudication of the rights of the original parties.

Professor Maurice Rosenberg, in a perceptive article on judicial discretion,

disapproves of the term:
The phrase "abuse of discretion" ... is used to convey the appellate court's
disagreement with what the trial judge has done, but does nothing by way of
offering reasons or guidance for the future. The phrase ... does not
communicate meaning. It is a form of ill-tempered appellate grunting and
should be dispensed with.
Rosenberg, Judicial Discretion of the Trial Court, Viewed from Above, 22
Syracuse L.Rev. 635, 659 (1971). But, as a member of this panel has pointed
out, the phrase is now "so embedded in hundreds of decisions, as well as in
statutes, that we cannot just wish it away." Friendly, Indiscretion About
Discretion, 31 Emory L.J. 747, 762-63 (1982) (footnote omitted).

Of course, nothing we have said prevents the district judge from submitting the
proposed interrogatories in this case to the jury